- 40 - In addition, the explicit language of section 1.263A- 1(f)(4), Income Tax Regs., indicates that the reasonableness standard should not be read into section 1.451-3(d)(6)(ii), Income Tax Regs. The reasonableness standard of section 1.263A- 1(f)(4), Income Tax Regs., can apply only when section 263A is at issue. Section 1.263A-1(f)(4), Income Tax Regs., cannot apply when only section 460 is at issue. The first of three prongs to the reasonableness standard states: “The total costs actually capitalized during the taxable year do not differ significantly”. Sec. 1.263A-1(f)(4), Income Tax Regs. (emphasis added). While both sections 263A and 460 are at issue in the instant case, this will not always be so. Section 1.451-3(c)(3), Income Tax Regs., requires that under the percentage of completion method, costs incurred during the taxable year with respect to a long-term contract must be deducted in that year. Again, section 1.451-3(d)(6)(ii), Income Tax Regs., requires that costs must be reasonably allocated among the taxpayer’s long-term contracts and “other activities”. In situations where the “other activities” are not subject to the capitalization requirements of section 263A, the reasonableness standard of section 1.263A-1(f)(4), Income Tax Regs., cannot apply because no costs would “actually [be] capitalized”. Thus, the reasonableness standard of section 1.263A-1(f)(4), Income TaxPage: Previous 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 Next
Last modified: May 25, 2011